“The economy has had a dramatic impact on exit strategies” Terry Thompson (attorney with Gallagher & Kennedy PA, Phoenix)
Have you ever thought of an exit strategy as a part of your business plan? Can your business continue if you could no longer run it tomorrow? The question that arises in your mind would be, “why should I think of an exit strategy when I’m not ready to sell my business?” As a business owner, you need to understand that an exit plan will prepare you better for the inevitable transition of your venture – whether it is expected, unexpected or as the outcome of any undesirable circumstances that can or do arise. You can say that a business exit strategy plan is similar to your personal will that you would leave with your attorney.
Experts Say Business Owners should have Exit Plan Prepared
A global survey conducted in 2011 by the Korn/Ferry institute on 1,300 company’s reports that 98% of business CEO’s say a succession plan is important. However, only 35% have one in place. The reason being, exit strategizing is rarely at the top of a business owner’s priority list. “Part of what’s hard for them and what holds them back from planning is that they didn’t get into (the business) to get out,” says Shill, an attorney at Phoenix law firm Jackson & White PC. Here are the reasons why you should not delay putting an exit strategy in place.
- Having a business exit strategy in place can help to mold the business in the way you always wanted. It helps to keep the goal of maximizing the value of your venture. The value of the business will be greatly affected if you do not have a business exit plan in place.
- A business exit plan helps groom your successors, whether they are chosen from within the family or from the business management team.
- You can make an exit at any point in time when the market is booming or when the business is reaping profits.
- Remember, if you ever wish to sell your business in the future, you need to have a business exit strategy in place today. Or else it will also affect the future success of the business and your tax liabilities.
A Few Exit Strategies that you Need to Know
- If you are in a partnership business, sell your shares – When you are ready to retire or move on to start something of your own, you can sell your equity to the existing partners or to any employee whom you feel is eligible for partnership.
- Allow your business to run dry if you are a sole proprietor – Once you have made the decision to exit, you can increase your personal salary and pay yourself a bonus. However, ensure that you settle the debts if any. You can liquidate your assets before closing the doors. But remember that with larger income comes larger tax liability.
- Liquidate your business – Here, you can negotiate your business with your buyers. In most cases, it is sold at the market value. Since it is a simple approach, you are likely to reap the least revenue.
- Merge – If you believe that two businesses can create more value than one company, then go ahead and merge. The merger may be your ticket to exit. If you do not want to be involved in the day-to-day functioning of the business, you can always take the role of an advisor. However, if are planning for a total retirement, then you need to call the head of the other firm to stay on.
- Acquisition – Here, you have to choose your acquirers wisely to en-cash on the value of your business. Have a good business attorney value your business before you meet with the acquirers. Having a good business plan in place will fetch more than what you might otherwise have earned in a sale.
All entrepreneurs should include an exit strategy in their start-up business plan. The strategies can be reviewed and revised according to the changes you make in your business or at the time of your annual business planning and budgeting. If you are an established business owner and do not have an exit plan yet, consider having one in place at the earliest.
Flickr image by friggy_30
